SBI lowers credit growth target 300 basis points

Expecting a slowdown, the State Bank of India (SBI) has lowered its credit growth estimate by 300 basis points to 16-19% from 19-22% earlier.

“With interest rates rising, many companies are reconsidering their expansion plans. Therefore, we expect some slowdown in demand for credit, particularly long-term and term credit for equipment finance,” Pratip Chaudhuri, the bank’s chairman, said on Tuesday.

That, however, is unlikely to impact the bank’s net interest margins (interest earned minus interest paid as a percentage of total earning assets) or increase sticky loans, Chaudhuri said.
SBI’s net interest margin would improve to 3.5%, or 15 basis points more than the number last fiscal, he said.

“This is because of the increase in our base rate from 8.5% to 9.25%. Secondly, our special home loans that were given at 8% in the first year and 9.25% in the second year have been discontinued. Companies are also accepting higher rates of interest. So the initial trends in margins are very positive,” he said.
SBI expects non-performing assets (NPAs) to come down this year despite the banking industry preparing for delinquencies.

The bank’s net NPA stood at 1.63% on March 31, 2011. “Our objective would be to bring it down at least by 25 basis points in the current financial year,” he said.

SBI will make additional provisioning of about Rs550 crore in the first quarter because of teaser loans, he said.

“This is not due to any specific delinquency but because the Reserve Bank of India wants it. This would be maintained in an account called the countercyclical buffer,” he said.

Meanwhile, the bank expects improvement in its ‘Camels’ (acronym for capital adequacy, asset quality, management, earnings, liquidity and sensitivity risk) rating during the last fiscal, he said, but did not reveal what it was. “It cannot be revealed,” he said, just adding the rating in 2010 was better than in 2009.
On the consolidation of associate banks, Chaudhuri said there will be a pause. “Only in 2012 will we apply ourselves to the issue,” he said.